Gimme a 12-15% flat rate, and I'll be satisfied.
Posted on 12/31/2005 8:45:33 AM PST by george76
Ronald Reagan once said an economist is someone who sees something that works in practice and wonders if it would work in theory.
So why is it that when confronted with a concept that works in both practice and theory, so many people refuse to believe it?
The Laffer Curve, popularized by economist Arthur Laffer, says the government can maximize tax revenue by setting the tax rate at ...
The logic is obvious on the ends of the spectrum: if the tax rate is 0%, the government collects no money.
If it is 100%, people have no reason to earn, and the government still collects no money.
Federal tax receipts for October and November (the first two months of fiscal 2006) were $288 billion. This is up from the first two months of fiscal 2005 ...
Despite cutting tax rates in May 2003, tax receipts for this two-month period have risen for three consecutive years.
We were on the wrong side of the curve (and may still be):
Tax rates were too high.
(Excerpt) Read more at humaneventsonline.com ...
I'd always use a little exercise to teach my kids about this phenomenon. I'd ask them how much tax they would pay if their yearly earnings were $100 and the tax rate were 10 percent. Of course they'd say it would be $10. Then I'd ask them how much tax they'd pay if the rate were 30 percent, 40 percent, and so on. When we got to 100 percent, they'd invariably say it would be one hundred dollars. To which I'd respond by asking whether they would be content to work for no pay. The point was always driven home.
The problem is that political power with high tax receipts is like an alcoholic inheriting a liquor store. If the money was used to pay a deficit great, but in reality it is seen as an opportunity to spend, spend, spend.
"The tax rate should be fixed. It should be set at a flat 20% rate"
I call that bet and lower you by half and half again and half again.
Privatize anything you can't afford. If private business can privatize, so can gummit.
Our federal budget has almost one trillion dollars in "entitlement" spending programmed into it this year, {medicare, medicade and SS} with more coming each year. Lowering the tax rates does increase tax revenues {that is a fact that cannot be disputed}. However, the changing demographics {America is getting older} mean that we cannot tax ourselves out of the coming fiscal real crisis.
President Bush tried for most of 2005 to make the Country aware of the coming problem. He was derided by both the media and the demonRATS {same thing} and ignored by the pubbie congresscritters.
If the programs are not changed, the clock will eventually force changes. The laws of supply and demand cannot be ignored. I'm old enough {and have enough of my own money} that I won't be effected, but my children and certainly my grandchildren will be. I hope that the politicos will see the train coming down the track, and do the right thing, but I doubt it.
Talk about hitting the nail right on the head. When cutting the amount of growth is seen as a slash, real cutting isn't going to be easy. I recommend starting small. First off get rid of congression raises. They should have to vote a raise in by 75% of the full house and full senate.
You can't eat an elephant all at once. You have to do it one bite at a time.
Gimme a 12-15% flat rate, and I'll be satisfied.
I'd say 10%. If 10% is good enough for the Lord, it ought to be good enough for the government.
"I agree but it doesn't really need to be optimum all the time. "
Excellent point! This is often overlooked.
Analagously, I don't need to optimize my income (hours worked vs. money earned). If I make enough to live well and save for my retirement and I'm happy with what I have, I shouldn't need to work more hours or push for a raise, should I? Similarly, if the government has enough to operate on, it shouldn't always be looking for the next buck.
The Laffer Curve theory has proven itself in real-world economics. What I find inexplicable is why we always think of it in terms of optimizing revenue for the government!
I believe that all levels of government should be kept on an almost starvation revenue. Where is it established that government must be insulated from the economic realities "We, The People" face every day?
True government functions are limited and should only be a mild burden on the taxpayer. This is only possible if the taxpayer is able to place limits on governments' ability to tax and spend.
I believe a more appropriate use of the Laffer Curve is that of a check on the upper effective limit of taxes, not as a means to maximize government revenue. By determining this upper limit the "starvation" limit could then be estabished for tax revenues to the government.
Of course, this "starvation" limit would vary with economic conditions. Too bad. Government should not be insulated from reality. Right now it is. And we have runaway spending. Time to rein government in using the purse strings.
Again, the Laffer Curve works. It is time to make it work for the good of the country, not the government.
re:pork barrel
I think too much tax revenue in the hands of politicians is like a lottery windfall in the hands of a moron. Think about the stories you've read about how too much money has destroyed a person and/or his family. Too much money can lead to drugs, alcohol, excessive partying. How many rock stars, actors, etc., does this describe? Sure, I'd like their money, but I wouldn't trade for their quality of life.
Same with the government. Too much money and you end up with pork, with special programs that are not only non-productive but anti-productive, new entitlements that we are then forced to fund from now till forever, and political squabbling over power and control of the money.
That is a fabulous idea. Seriously. The next step in democratizing the budget process.
What value would there be to a public program, if the taxpayer didn't care to fund it?
It would eliminate so much irritation, on both sides of the partisan divide. If liberal taxpayers want to fund the NEA, fine. If we want a fence over the boarder, fine. I'd allocate my taxes 50% to national defense, 20% to roads and highways, 20 percent to the National Park Service, and 10% to personal pork.
I'd allocate nothing to the Departments of HHS, Education, or the UN.
"What I find inexplicable is why we always think of it in terms of optimizing revenue for the government! "
What's inexplicable is that we let totalitarians dressed in economist or politician clothing have any chance at implementing their audacities upon us, while on our payroll!
The problem comes in with getting ANYONE to cut taxes.
How does a sales tax (or VAT, whatever it is called in its discussion mode carnation here) figure in---in lieu of income tax or in addition to very very modest income tax rates?
Doesn't that seem to be about the only way to "raise" taxes when the economy is good and "automatically" "lower" taxes when the economy starts slowing?
Does Laffer address this type of tax? I don't know much about tax policy, but it seems like this is a way to build the Laffer curve into tax policy.
Another reason why I asked the question about moving from income tax to a VAT tax---or to a VAT + a very modest income tax rate.
A VAT would "freely" change with the economy---not rates, per se, but revenue taken from the market---with no new compliance charges or individual reliance problems.
Maybe another Laffer Curve where we adjust the tariffs up or down to balance imports and exports.
The optimum point on the Laffer Curve is also dynamic:
The optimum income for the government is not were we should operate. Rather, we should operate on the low tax rate end, because too much government income leads to too much government spending.
Limited government~! Limited income, limited spending, limited powers, and limited terms of office.
There should be no pension for civil servants. That encourages them to get off the government tit, and get a real productive job. If they don't then civil servants become civil masters.
Please advise HOW to post things like the laffer curve...I tried copying and pasting the labor supply curve without success...
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